Volkswagen announced that it will invest $5 billion in Rivian Automotive to inject new vitality into the struggling startup. The funds will help Rivian launch new models and attract consumers in the context of slowing growth in the electric vehicle market. According to the agreement between the two parties, Rivian will jointly establish a joint venture with Volkswagen, with each holding half of the equity, sharing electric vehicle architecture and software. These technologies may eventually be used by German automakers' brands such as Audi, Porsche, and Lamborghini.
After the investment news was announced, Rivian's stock price rose over 55% after hours on Tuesday and more than 20% at the opening on Wednesday (June 26).
(Source: Google)
This investment will supplement Rivian's gradually decreasing cash reserves, help this startup move closer to profitability, and seek a stronger competitive position in the market dominated by Tesla. According to the agreement between the two parties, Rivian will jointly establish a joint venture with Volkswagen, with each holding half of the equity, sharing electric vehicle architecture and software. These technologies may eventually be used by German automakers' brands such as Audi, Porsche, and Lamborghini.
(Source: Reuters)
In early trading, Rivian's trading volume exceeded 800 million shares, more than twice its average trading volume in the past 30 days. If the momentum continues, the stock is expected to achieve its best single-day performance in history. At the same time, it has become one of the hottest stocks discussed on the stock trading platform Stocktwits.
Susannah Streeter, director of money and markets at Hargreaves Lansdown, commented: "This is a great expression of trust in Rivian's future prospects. This cooperation helps reduce production costs and enhances defense against China's increasingly strong electric vehicle manufacturers."
Citigroup analysts pointed out that this transaction could bring this luxury electric vehicle supported by Saudi Arabia to the forefront, as the company is willing to license its technology and has established a partnership with British automaker Aston Martin. Therefore, Lucid's stock price also rose by 3%.
However, the increasingly strong cooperation between electric vehicle manufacturers and traditional automakers may weaken companies that have provided third-party software and technology to the automotive industry for a long time, such as Aptiv's businesses. Aptiv's stock price fell by nearly 10%, and analysts at Piper Sandler said the transaction was a "dangerous sign" for the company's strategy.
Rivian's CEO RJ Scaringe told Reuters that Volkswagen's investment will provide the company with the necessary funds to develop a Tesla Model Y competitor, the R2 SUV, at a lower price, as well as the planned R3 crossover vehicle.
"This is a core change for Rivian, changing the company's capital structure at a critical moment, and reshaping its future story and Wall Street's views," said Dan Ives, an analyst at Wedbush Securities.
Although the company's market value was expected to increase by more than $4 billion to reach $12 billion, Rivian said in February that it does not expect to increase production in 2024, which has led to a nearly 50% drop in its stock price this year.
Michael Shlisky, an analyst at DA Davidson, warned that although the financing solved the urgent need, it may put pressure on Rivian's stock price because it has a dilutive effect. He added: "We are not trying to pour cold water, but this financing is not free and will bring $3 billion in dilutive equity investment, some of which may be lower than the current price."
In addition, Rivian has abandoned the previous cooperation agreements with Ford and Mercedes-Benz reached in 2021 and 2022 respectively for the production of electric vehicles and commercial vehicles.
FX168 analyst exclusive analysis
FX168 analyst Chen Wei believes that Volkswagen's investment is undoubtedly great news for Rivian. Currently, Rivian's book funds are approximately US$8 billion, and it is expected to need US$9 billion in the next three years. The company is difficult to achieve profitability in the short term, and cash flow is stable every quarter. Out. This means that without the injection of external funds, Rivian's liquidity will face greater risks. This $1 billion investment by Volkswagen just makes up for this funding gap, and the other $4 billion will be used for cooperation to build factories and research and development.
From this point of view, although this capital has solved Rivian's urgent need to increase production in the next three years and is a good news, it is not enough to make Rivian sleep soundly. The follow-up funding consumption of cooperation and establishment of the factory is still huge, which can only be said to provide a foundation for Rivian to continue to develop steadily in the market. For now, Rivian does have its advantages in the dislocated competition in the SUV and pickup truck markets, especially under the market opportunities provided by Tesla.
However, based on the current situation, if this year's shareholders' meeting cannot bring more support, and the production capacity remains at the level of more than 50,000 vehicles last year, then it will be difficult to achieve a sustained rise in stock price.
Therefore, Chen Wei believes that although the public's investment has eased Rivian's current financial crisis, it has not brought the expected stunning changes. Subsequent market tests are still severe, especially after the sharp rise in stock prices after hours, be cautious of possible market overreactions. If the shareholders' meeting does not have a stronger performance, there may be investors choosing to take profits in the short term.